Loans for First Time Home Buyers

Many young people who want to purchase their first home might be a bit overwhelmed when faced with the array of financial alternatives available out there. However, by getting the necessary information concerning the variety of loans and their particular characteristics and requirements, one can aim at making the best financial decision, suiting his/her current status. This article wants to provide you with a detailed introduction to this subject so that you can make a sensible choice.

Understanding First Time Home Buyer Loans
First-time loans are created particularly for young people who want to purchase their first home, as the name already states. These loans usually come with a range of advantages. However, if you wish to grow the chances of having your loan approved, there are some steps you need to take.

For starters, you should get to know your credit score, which aids the lender to establish the risk of lending you money. But what are the factors that determine your credit score? Your paying bills history, together with your monthly debts. Furthermore, auto loans, student, or personal loans imminently appear on your credit reports. Having a score of 740, or upper, is typically recognized as a great start.

While the credit score is a critical component that will either weigh the situation to your advantage or not, it’s not the only factor that counts. Lenders take into account aspects such as employment history, income, monthly debts, the down payment amount, and size of the loan.

Features of First Time Home Buyer Loans
Regarding the features of first time home buyer loans, the following characteristics apply:

  • Flexibility
  • Confidentiality
  • Online account management
  • Prompt approval
  • Timely cash access
  • Various repayment options

First Time Home Buyer Loans Options
Your options for a home loan, in the position of a first-time buyer, depend on your individual status. The greater majority of lenders will be more than eager to provide you with a set of alternatives, based on the premises mentioned above – employment history, income, down payment, the size of the loan, credit history, and so on. Now, let’s have a look at the alternatives you have at your disposal:

  • Fixed rate mortgage – this loan option will maintain your mortgage at the same rate throughout the entire life of the loan. In this scenario, the borrower benefits from a range of advantages. The primary benefit that comes with this alternative is that the predictable, regular payments enable the borrower to budget his/her finances more efficiently. Concurrently, it provides protection to the borrower, in the case in which the interest rates may go higher, without further notice. One thing to consider is that when it comes to short-term loans, the regular repayments are higher as opposed to long-term loans.
  • Adjustable-rate mortgages – an adjustable-rate mortgage means that the borrower’s interest rate is fixed for an initial amount of time. Afterward, it is adjusted on an annual basis. Normally, the interest rate on adjustable-rate mortgages is lower, in comparison with a fixed-rate Hence, the borrower starts with a lower repayment option. This alternative provides the borrower with flexibility in the case in which one anticipates future financial growth and one plans to refinance in the years to come. One thing to carry in mind is that, soon after the initial amount of time is done, one can expect regular alterations in interest payments.
  • Mortgage + home equity financing – this alternative combines the first mortgage option with home equity. The initial advantage to this option is enjoying unlimited access to equity, without reapplying. Additionally, this option enables the borrower to be approved for a significant loan amount, compared to the previous options.

First Time Home Buyer Programs
Get acquainted with a range of helpful homebuyer programs, which may enable you to save significant amounts of cash.

  • FHA Home Loansprobably the first to-go-to program for the greater majority of Americans, as this program is particularly recommendable to individuals who have bad credit history. In this scenario, lenders have extended their acceptance requirements, and borrowers may get approved for loans with 3.5 percent or less of down payment. FHA mortgages are ideal for borrowers who haven’t established a positive credit history, or may have dealt with challenges in the past. The requirements for getting qualified are flexible. Inquire about this alternative here.
  • USDA Home Loans - this refers to an assistance program designed for homebuyers by the U.S. Department of Agriculture. That doesn’t mean you are expected to construct a farm. This program is, in fact, established for rural areas, enabling 100 percent financing, by providing lenders with mortgage guarantees. Certainly, there are some limitations, varying by region.
  • VA Home Loans- the U.S. Department of Veterans Affairs aids veterans, or their surviving wives to purchase homes. By definition, the program is generous, as it doesn’t require mortgage insurance or down payment. Nonetheless, similar to other military procedures, the approval is due to last for a while.

Pros/Cons of First Time Home Buyer Loans
Having your home loan approved, and finally making the step of purchasing your home seems like a dream come true. However, there are some disadvantages to this financial step as well:


  • Limited restrictions
  • Flexibility regarding credit scores
  • Fast approval
  • High rate of success
  • Minimum cash investment


  • High interest – in the case in which the down payment is minimum
  • Large mortgage insurance costs, and long payment terms

Eligibility for First-Time Home Buyer Loans
Typically, your eligibility for this type of loan is directly linked to the following criteria:

  • U.S. resident
  • 18 years or older
  • A valid social security number
  • An active bank account
  • Employment record
  • Certificate of eligibility – for veterans

How to Apply for First Time Home Buyer Loans
If you have a good credit record, financial documentation, and comparison knowledge, you are on the right path towards deciding which lender is best for you. After you understand what different banks offer, in terms of advantages and disadvantages, you can weigh the pros and cons and determine your best option.

What will you need? For starters, you’ll require your social security number, income documentation for the last two years, your records of assets, bank assessments and savings. Concurrently, the lender may require additional proof or documentation; every institution may have particular demands. Typically, the procedure can be done either at a creditor’s branch or online, upon request – in some cases.

FAQ for First Time Home Buyer Loans

  1. How does my credit score influence my mortgage rate?

We’ve mentioned earlier in the article that your credit score accounts as an important factor that will show the lender whether you are a reliable borrower or not. Even though there’s no fixed minimum credit score required to get approved for a loan, it’s primordial for you to maximize your score, before starting this entire process. By doing that, you’ll qualify for a loan, and you’ll obtain a positive mortgage rate. Typically, programs such as the FHA have much lower credit score requirements.

However, a word of caution – remember that every time you apply for a credit card or loan, that is reported to the credit bureaus. If a lender observes multiple applications being recorded in a short timespan, that may decrease your chances of receiving approval. On that account, one should proceed with caution.

  1. What documents are needed for the mortgage application process?

Generally speaking, mortgage paperwork refers to providing the lender with documents concerning your income, monthly debts, where you’ve lived, as well as account balances. You can communicate this information either in person or on your application.

While completing a full mortgage application, you’ll be required to include the following aspects: living history – residential address for the previous two years, as well as the contact details of previous landlords. Information regarding your personal assets will be communicated via bank account statements. Certainly, income history, accompanied by paycheck subs, together with a list of monthly debts is expected. These are some of the aspects you’ll need to carry in mind for your mortgage application process. Your lender may require additional data.

  1. What mortgage can I afford?

Home affordability typically refers to the amount of money you can actually borrow. Factors such as residence history, the amount of your down payment, credit history, income and employment history will determine the mortgage you can afford. In many cases, the amount you’ll be allowed to borrow may exceed the borrower’s possibilities. Therefore, being cautious is a positive starting point.

There are supplementary costs that may often go unnoticed, such as mortgage application fees, down payment, earnest money, and closing costs. The mortgage application fees refer to the origination of the loan. The earnest money is the primary deposit that is paid to the seller, in the case in which the offer is accepted. Down payments can vary from 0 percent to 20 percent, and by paying a significant deposit, you benefit from a better mortgage rate.

And lastly, closing costs include attorney’s fees, inspection, and surveys, city recording fees, title insurance, escrow deposit. Still, one shouldn’t be intimidated by the closing costs, as the lender will provide you with an explicit estimation in advance. Taking into account these additional fees will give you an insight into the actual costs of the loan.